No.1 for CAICWA & MECICEC MASTER DS 18. BUDGETARY CONTROL MODEL WISE ANALYSIS OF PAST EXAM PAPERS OF IPCC me Plalalal2 alelelsls We Woe. NAME glalm/ s/s] elmols/ef2] 2] 2/3 2/2) yee) /t| sys lz|s]2 1 [cowmaevensve uocer | 18 : : “Eph PRODUCTION — BUDGET, RAW 2 |iarenmrurcuese auoser] 2 f-|s|-|-]-|-fs}-]-]-]- fv omecr WAGES BUOGET 2 [sags avocer TEE EE EEE SEEE 4 [FLeNBLe Buncer ee 5 | BUDGETS AND STANOAROS : Tee ee The main characteristics of budget are as follows: i. A budget is concemed for a definite future period, ii, A budget is a written document. ili. A budget is a detailed plan of all the economic activities of a business. iv. All the departments of a business unit co-operate (the preparation of a business budget SV v. Budget is a mean to achieve business and it ig@SNAN end in itself. x. Budget is usually prepared inthe light of Past Experience. xi, Budget is a constant endeavour of the Management. Formulas: Production (units)= No. of units to be Sold + Closing stock- Opening stock Consumption of Raw materials (Qty)= production x consumption of raw material per unit (OR) = Opening stock +purchase of RM - Closing stock Purchase of raw material (Qty) = Consumption + Closing stock — Opening stock Purchase of raw material (Rs) = Purchase of raw material (Qty) x purchase cost per kg Labour hours required roduction (units) x Labour hours required per unit Machine hours required roduction (units) x Machine hours required per unit PROBLEMS FOR CLASSROOM DISCUSSION PROBLEM 1: A company is engaged in the manufacture of specialised sub-assemblies required for certain electronic equipments. The company envisages that in the forthcoming month, December, 2012, the sales will take a pattern in the ratio of 3: 4 : 2 respectively of subassemblies, ACB, MCB and DP. The following is the schedule of components required for manufacture’ 13.1 IPCC _38e_Costing (Problems)_Budgetary Contr8851 25025/26 ‘Component requirements ‘Sub-assembly Selling price | Base board | _1C08 1ci2 1C26 ‘ACB 520 1 8 4 2 MCB. 500) 4 2 10 6 DP. 350 1 2 4 8 Purchase price (Rs.) 60 20 12 8 The direct labour time and variable overheads required for each of the sub-assemblies are: Labour hours per sub-assembly Grade A] Grade] Variable overheads per sub - assembly (Rs.) ACB. 8 16 36 MCB 6 12 24 DP 4 8 24 Direct wage rate per hour (Rs) 5 4 = The labourers work 8 hours a day for 25 days a month. The opening stocks of sub-assemblies and components for December, 2012 are as under: ‘Sub - assemblies Components ACB 800 Base Board 7,600 MCB 7,200 1COB 7,200 DP 2,800 IC412 6,000 1C26 4,000 Fixed overheads amount to Rs. 7,57,200 for the month monthly profit target of Rs. 12 lacs has been set. The company is eager for a reducti fosing inventories for December, 2012 of subassemblies and components by 10% iity as compared to the opening ‘stock. Prepare the following budgets for December 2 2 a) Sales budget in quantity and value SB b) Production budget in quantity LY c) Component usage budget in quantity. d) Component purchase budget in quantity and value. e) Manpower budget showing the number of workers and the amount of wages payable. (SM)(Ans.: a) 6,200, 32,76,000, b) 6,220, c) 74,160, d) 18,260, 10,95,600, e) 576, 6,76,000) (Solve problem no 1of assignment problems as rework) Note: MODEL 2: PRODUCTION BUDGETRAW MATERIAL PURCHASE BUDGET AND DIRECT WAGES BUDGET PROBLEM 2: Jigyasa Ltd. is drawing a production plan for its two products Minimax (MM) and Heavy (HH) for the year 2013-14. The company's policy is to hold closing stock of finished goods at25% of the anticipated volume of sales of the succeeding month. The following are the estimated data for two products: Minimax (MM) Heavy high (HH) Budgeted Production units 4,80,000 4,20,000 (Rs) (Rs) IPCC _38e_Costing (Problems)_Budgetary Control, 13.2No.1 for CAICWA & MECICEC MASTER Direct material cost per unit 220 280 Direct labour cost per unit, 130 120 Manufacturing overhead 4,00,000 5,00,000 The estimated units to be sold in the first four months of the year 2013-14 are as under April May. June July Minimax 8,000 10,000 12,000 16,000 Heavy high 6,000 8,000 9,000 14,000 Prepare production budget for the first quarter in monthwise. (SM, RTP — N13)(Ans.: Production = 8,500,10,500,13,000) (Solve problem no 2 of assignment problems as rework) Note: PROBLEM 3: AK Limited produces and sells a single product. Sales budget for calendar year 2012 by quarters is as under: Quarters l o uM Vv No. of units to be sold 48,000 G00 25,000 27,000 The year is expected to open with an inventory. AB with inventory of 8,000 units. Production is cug@RBtily scheduled to provide for 70% of the current quarter's sales demand plus 30%ve{S® following quarter demand. The budgeted selling price per unit is Rs. 40. The stand&svost details for one unit of the product are as follows: &S Variable Cost Rs. 34.50 per unit, R&@KBverheads Rs.2 hours 30 minutes @Rs, 2 per hour based on a budgeted production QNwne of 1,10,000 direct labour hours for the year. Fixed overheads are evenly distributed thrSughout the year. You are required to: a) Prepare Quarterly Production Budget for the year. b) Inwhich quarter of the year, company expected to achieve break-even point (PM, M12 - 5M)(Ans: i 19,200 uts, 22,900 uts, 25,600 uts, 26,300 uts, i. BEP achieved in 2 quarter.) (Solve problem no 3 of assignment problems as rework) 90 units of finished products and close Note: PROBLEM 4: (PRINTED SOLUTIONS AVAILABLE) A company is engaged in manufacturing two products ‘X’ and ‘Y’. product X uses one unit component ‘P’ and two units of component ‘Q’. product ‘Y’ uses two units of component 'P’, one unit of component ‘Q’ and two units of component 'R’. Component ‘R’ which is assembled in the factory uses one unit of component o Components ‘P’ and ‘Q’ are purchased from the market. The company has prepared the following forecast of sales and inventory for the next year. Product "x" Product ‘Y" Sales (in units) 80,000 4,50,000 At the end of the years 10,000 20,000 At the beginning of the year 30,000 50,000 IPCC _38e_Cos' 9 (Problems)_Budgetary Control. 13.38851 25025/26 www.mastermindsind com The production of both the products and the assembling of the component ‘R’ will be spread out uniformly throughout the year. The company at present orders its inventory of ‘P’ and ‘Qin quantities equivalent to 3 months production. The company has compiled the following data related to two components: P Q Price per unit (Rs.) 20 8 Order placing cost per order (Rs.) 1,500 1,500 Carrying cost per annum 20% 20% Required: a) Prepare a Budget of production and requirements of components during next year. b) Suggest the optimal order quantity of components ‘P’ and ‘Q (M - 06) (Ans.: (a). Total Requirement: P is 3,00,000; @ is 4,80,000; R is 2,40,000; (b)P is 18,000; @ is 30,000 ‘components) Note: PROBLEM 5: (PRINTED SOLUTION AVAILABLE) A single product Company estimated its sales (in units) for the next year quarter — wise as under- Q-1 Q-2 Q-3 Q-4 30,000 units 37,500 units 44,250 units 45,000 units The Opening Stock of Finished Goods is 10,000 units a Company expects to maintain the Closing Stock of Finished Goods at 16,250 units ind of the year. The production pattern in each quarter is based on 80% of the Sal ie current quarter and 20% of the Sales of the next quarter. Qs The Opening Stock of Raw Materials in the be{K@)WU f the year is 10,000 kg and the Closing Stock at the end of the year is required te GE YONinizined at 6,000 kg, Each unit of finished output requires 2 kg of Raw Materials. US ‘The Company proposes to purchase th&shtire annual requirement of Raw Materials in the first three quarters in the proportion and at the prices given below- Quarter Purchase of Raw Materials % to total annual Price per kg requirement in quantity I 30% Rs.2 Ul 50% Rs.3 u 20% Rs.4 The value of the Opening Stock of Raw Materials in the beginning of the year is Rs.20,000. Required: Present the following for the next year, quarter — wise- 1. Production Budget in units. 2. Raw Material Consumption Budget in Quantity, 3. Raw Material Purchase Budget in Quantity and Value. (SM)(Solve problem no 4 of assignment problems as rework) (Ans.: (1) I~ 31500 uts, Il - 38250 uts, Ill - 42000 uts, IV - 48250 uts; (2) | - 63000 uts, 1! - 76500 uts, lll ~ 84000 uts, IV — 96500 uts; (3) 315000, Rs.9,13,500) Note: IPCC _38e_Costing (Problems)_Budgetary Control, 13.4No.1 for CAICWA & MECICEC MASTER IDS PROBLEM 6: (PRINTED SOLUTIONS AVAILABLE) Concorde Ltd, manufactures two products using two types of materials and one grade of labour. Shown below is an extract from the company's working papers for the next month's budget Product-A| Product -B. Budgeted sales (in units) 2,400 3,600 Budgeted material consumption per unit (in kg): Material-X 5 3 Materia-Y 4 6 ‘Standard labour hours allowed per unit of product 3 5 Material - X and Material - Y cost Rs. 4 and Rs. 6 per kg and labours are paid Rs. 25 per hour. Overtime premium is 50% and is payable, if a worker works for more than 40 hours a week There are 180 direct workers. The target productivity ratio (or efficiency ratio) for the productive hours worked by the direct workers in actually manufacturing the products is 80%. In addition the non-productive downtime is budgeted at 20% of the productive hours worked. There are four 5 - days weeks in the budgeted period and it is anticipated that sales and production will occur evenly throughout the whole period Itis anticipated that stock at the beginning of the period will be: Product - A. 400 units Product - B 200 units Material - X 1,000 kg, S Material - Y 500 kg. & The anticipated closing stocks for budget re as below: Product - A. 4 days sales Product - B 5 days s Material - X 10 days imption Material - Y 6 days consumption Require Calculate the Material Purchase Budget and the Wages Budget for the direct workers, ‘showing the quantities and values, for the next month. (SM, RTP - M14)(Ans: 36,950, 45,936Kgs, Rs.1,47,828, Rs. 2,75,616; 43,410 hrs, Rs.12,67,875,) (Solve problem no § of assignment problems as rework) Note: PROBLEM 7: A fruit juice manufacturer is in the process of preparing budgets for the next few months, and the following draft figures are available: Sales Forecast June 6,000 Litres July 7,500 Litres August 8,500 Litres September 7,000 Litres October 6,500 Litres A litre of fruit juice has a standard cost of Rs. 75 and a standard selling price of Rs. 105. Each litre of juice uses 3.5 kg. of fruits and it is policy to have stocks of fruits at the end of each month to cover 50 per cent of next month's production. There are 5,800kg in stock on 1st June. IPCC _38e_Cos' 9 (Problems)_Budgetary Control. 13.5dsindi 8851 25025/26 www.master com There are 750 litres of finished fruit juice in stock on 1st June and it is policy to have stocks at the end of each month to cover 10% of the next month's sales. Requirements a) Prepare a production budget (in litres) for June, July, August and September. b) Prepare a fruits purchase budget (in kg.) for the months of June, July and August. ¢) Calculate the budgeted gross profit for the quarter June to August. (MTP - N15)(Ans: a) 6,000, 7,600, 8,360, 6,950; b) 28,500, 27,912.5, 26,776; c) 1,80,000, 2,28,000, 2,85,000) (Solve problem no 6 of assignment problems as rework) Note: PROBLEM 8: (PRINTED SOLUTION AVAILABLE) Aditya Ltd. manufactures two products K596 and H852. The sales director has anticipated to sale 8,000 units of Product K596 and 4,200 nits of Product H852. The Standard cost data for the products for next year are as follows: Product - K596 Product - H852 Per unit Per unit Direct materials’ - Material X @ Rs. 15 per kg 12kg 15kg - Material Y@ Rs. 16 per kg 15kg 6kg - Material Z @ Rs. 5 per itr 8 tr. 14 itr. Direct wages: = Unskilled @ Rs. 40 perhour | 12 hour, S 10 hour - Skilled @ Rs. 75 per hour Bhy S hour Budgeted stocks for next year are as follows: 110% With the help of intensive advertisement rea ure additional sales (over and above the above mentioned estimated sales by Divisi lanagers) are possible: Product ision West division x Lo 70 units w 40 units 50 units You are required to prepare sales Budget for 2015-16 after incorporating above estimates and also show the Budgeted sales and Actual sales of 2014-15. (NOV-15,8M) (Ans: 5,000, 7,000, 13,000, 19,000, 3600, 5,400, 6,300, 10,500, 4,500, 6,300, 8,700, 14,700) Note: MODEL 4: FLEXIBLE BUDGET PROBLEM 10:4 factory which expects to operate 7,000 hours, i.e., at 70% level of activity, furnishes details of expenses as under: Variable expenses Rs. 1,260 ‘Semi - variable expenses Rs, 1,200 Fixed expenses Rs. 1,800 The semi-variable expenses go up by 10% between 85% and 95% activity and by 20% above 95% activity. Construct a flexible budget for 80, 90 and 100 per cent activities. (SM) (Ans.: Rs. 4,260, Rs. 4,440, Rs. 4,740, Rs. 5,040) (Solve problem no 7, 8 of assignment problems as rework) Note: IPCC _38e_Cos' 9 (Problems)_Budgetary Control. 13.7dsindi PI com 8851 25025/26 www.master PROBLEM 41: ABC Ltd. is currently operating at 75% of its capacity. In the past two years, the level of operations were 55% and 65% respectively. Presently, the production is 75,000 units. The ‘company is planning for 85% capacity level during 2013-2014. The cost details are as follows: 55% (RS.) 65%(RS.) T5%{RS.) Direct Materials 11,00,000 13,00,000 15,00,000 Direct Labour 5,50,000 650,000 7,50,000 Factory Overheads 3,10,000 3,30,000 3,50,000 Selling Overheads 3,20,000 3,60,000 4,00,000 ‘Administrative Overheads 1,60,000 1,60,000 7,60,000 Profit is estimated @ 20% on sales The following increases in costs are expected during the year In percentage Direct Materials 8 Direct Labour 5 Variable Factory Overheads i 5 Variable Selling Overheads i 8 Fixed Factory Overheads 10 Fixed Selling Overheads 15. ‘Administrative Overheads 10, Prepare flexible budget for the period 2013-2014 at 85% level of capacity. Also ascertain profit and contribution, (SM) (Ans: Total cost at 85% capacity:37, 85,200; profit:9,46,300;contribution:14,57,300) Note: PROBLEM 12: (PRINTED SOLUTION avanssug ino has prepared its expense budget for 20,000 units in its factory for the year2{ letailed below: & (Rs. per, unit) Direct Materials & 50 Direct Labour 20 Variable Overhead 15 Direct Expenses 6 Selling Expenses (20% fixed) 75 Factory Expenses (100% fixed) 7 ‘Administration expenses (100% fixed) 4 Distribution expenses (85% variable) 2 Total 729 Prepare an expense budget for the production of 15,000 units and 18,000 units (PM)(MAY-13,7M) (Solve problem no 9, 10 of assignment problems as rework) (Ans.: 25,80,000, 20,14,000, 23,83,000)(Solve problem no 9 of assignment problems as rework) Note: PROBLEM 13: (PRINTED SOLUTIONS AVAILABLE) A department of Company X attains sales of Rs. 6,00,000 at 80% of its normal capacity. Its expenses are given below: ‘Administration costs: (Rs) Selling Costs : Office salaries 90,000 | Salaries 8% of sales General expenses 2% of sales | Travelling expenses 2% of sales IPCC _38e_Costing (Problems)_Budgetary Control, 13.8No.1 for CAICWA & MECICEC MASTER IDS Depreciation 7,500 | Sales office expenses 1% of sales Rates and Taxes 8,750 | General expenses 1% of sales Distribution costs: Wages (Rs.) 15,000 Rent 1% of sales ‘Other expenses ‘4% of sales Draw up Flexible Administration, Selling and Distribution Costs Budget, operating at 90 per cent, 100 per cent and 110 per cent of normal capacity (SM) (Ans.: 2,35,260 2,49,500, 2,63,750, 2,78,000) (Solve problem no 11, 12 of assignment problems as rework) Note: PROBLEM 14: Action Plan Manufacturers normally produce 8,000 units of their product in a month, in their Machine Shop. For the month of January, they had planned for a production of 10,000 units. Owing to a sudden cancellation of a contract in the middle of January, they could only produce 6,000 units in January. Indirect manufacturing costs are carefully planned and monitored in the Machine Shop and the Foreman of the shop is paid a 10% of the savings as bonus when in any month the indirect manufacturing cost incurred is less than the budgeted grovision The Foreman has put in a claim that he should b bonus of Rs. 88.50 for the month of January, The Works Manager wonders how ai ‘an claim a bonus when the Company has lost a sizeable contract. The relevant figur ’as under: Indirect manufacturing nses for Planned for Actual in & normal January | costs January ‘month (Rs.) (Rs.) (Rs.) Salary of foreman 1,000 1,000 1,000 Indirect labour 720 900 600 Indirect material 800 1,000 700 Repairs and maintenance 600 650 600 Power 800 875 740 Tools consumed 320 400 300 Rates and taxes 150 150 150 Depreciation 800 800 800 Insurance 100 100 100 5,290 5,875 4,990 Do you agree with the Works Manager? Is the Foreman entitled to any bonus for the performance in January? Substantiate your answer with facts and figures. (SM) (Ans.: No, 4,705, 4,990) Note: PROBLEM 15: (PRINTED SOLUTION AVAILABLE) TQM Ltd. has furnished the following information for the month ending 30th June, 2014. Master Budget | Actual Variance Units produced and sold 80,000 72,000 Sales (Rs.) 3,20,000 2,80,000 | “40,000 (A) Direct material (RS) 80,000 73,600 | 6,400 (F) IPCC _38e_Cos' 9 (Problems)_Budgetary Control. 13.9Ph:98851 25025/26 www.mastermindsindia.com Direct wages (Rs) 7,20,000 704,600 | 15,200 F) Variable overheads (Rs.) 40,000 37,600 2,400 (F) Fixed overhead (Rs.) 40,000 39,200 800 (F) Total Cost 2,80,000 2,55,200 The Standard costs of the products are as follows: Per unit (Rs.) Direct materials (1 kg. at the rate of Rs.1 per kg.) 1.00) Direct wages (1 hour at the rate of Rs.1.50) 1.50) Variable overheads (1 hour at the rate of Rs.0.50) 0.50 Actual results for the month showed that 78,400 kg, of material were used and 70,400 labour hours were recorded, Required: a) Prepare Flexible budget for the month and compare with actual results. b) Calculate Material, Labour, Sales Price, Variable Overhead and Fixed Overhead Expenditure variances and Sales Volume (Profit) variance. (PM)(Ans.; a) Profit 7,200(A), b) MCV = 1,600(A), FOHEXV = 800(F) Note: PROBLEM 16:The M-Tech Manufacturing Company, processes for the manufacture of a toy. The followin sSently evaluating two possible tion is available: 7 Process B Particulars (Rs.) Variable cost per unit we 12 14 Sales price per unit 20 20 Total fixed costs per year '30,00,000 21,00,000 Capacity (in units) 4,30,000 5,00,000 Anticipated sales (Next year, in units) 4,00,000 4,00,000 Suggest: 1. Which process should be chosen? 2. Would you change your answer as given above, if you were informed that the capacities of the two processes are as follows: A.6,00,000 units; B 5,00,000 units 7 Why? (16) Note: IPCC _38e_Costing (Problems)_Budgetary Control, 13.10MASTER No.1 for CAICWA & MECICEC ASSIGNMENT PROBLEMS MODEL 1: COMPREHENSIVE BUDGET PROBLEM 1: S Ltd., manufactures and sells 2 products, St and $2. The following data is relevant for drawing budget 1997. a) Projected Sales: Product Units Price (Rs.) 1 60,000 140 2 40,000 200 b) To produce one unit of S1 and S2 the following raw materials are used : Raw Material Unit ‘Amount used per unit St $2 A Kgs 4 5 B Kgs 2 3 c kgs 2 1 ¢) Inventories in Units: Product Expected January 1, 4897 | Target December 31, 1997 st 20,000 LY 25,000 s2 8,000 9,000 SG Raw Material A SS)” 32,000 Kgs 36,000 Kgs B 29,000 Kgs 32,000 Kgs c 6,000 Kgs 7,000 Kgs d) The anticipated purchase price of raw material A, B and C are Rs.12, Rs. and Rs.3 per Kg. respectively. e) Projected direct labour requirements for 1997, and rates of pay are Product Hours per Unit Rate per hour st 2 2 s2 3 16 f) Overhead is applied at the rate of Rs.20 per direct labour hour. Based on the above projections & budget requirements for 1997, prepare the following budgets: Sales budget in Rupees; Production budget in units; Raw material purchase budget in quantities; Raw material purchase budget in Rupees; Direct labour budget in Rupees; Budgeted finished goods at 31/12 in Rupees; Profit and Loss Budget. (Ans.: (1) Rs.1,64,00,000; (2) $4 - 65000 uts, S2 - 41000 uts; (3) A ~ 469000 Kgs, 8 - 256000 Kgs, C— 172000 Kgs; (4) A ~ Rs, 5628000, B - Rs. 1280000, C ~ Rs. 516000; 6) Rs. 3528000 (6) $1 ~ Rs. 3200000, S2— Rs. 1674000; (7) $1 - Rs. 720000, $2 Rs.560000) NO@aone IPCC _38e_Cos' 9 (Problems)_Budgetary Control. 13.418851 25025/26 MODEL 2: PRO! PROBLEM 2: X Y Z Limited is drawing a production plan for its two products - Product 'xmr and Product ‘yml' for the year 2015-16. The company's policy is to maintain closing stock of finished goods at 25% of the anticipated volume of sales of the succeeding month. The following are the estimated data for the two products: xml Ymi Budgeted Production (in units) 2,00,000 1,50,000 Direct Material (per unit) Rs.220 Rs.280 Direct Labour (per unit) Rs.130 Rs.120 Direct Manufacturing Expenses Rs.4,00,000 Rs.5,00,000 The estimated units to be sold in the first four months of the year 2015-16 are as under: April I May June I July Xml 8,000 | 10,000 12,000 | 16,000 Ym 6,000 8,000 9,000 44,000 Prepare: i) Production Budget (Month wise) ii) Production cost Budget (for first quarter of the year) PROBLEM 3: Calculate efficiency and activity ratio fror Capacity ratio = 75% Budgeted output 6,000 ngs Actual output = 5,000 yj Standard Time per unit en data: (M15, 8M)(Ans.:i) 8,500, 10,500, 13,000; i) 1,12,64,000, 1,00,83,333) (PM)(ans.: 111.19%, 83.33%) PROBLEM 4: A Light Motor Vehicle manufacturer has prepared sales budget for the next few months, and the following draft figures are available: Month No. of vehicles (October 4,000 November 3,500 December 4,500 January 6,000 February 6,500 To manufacture a vehicle a standard cost of Rs. 2,85,700 is incurred and sold through dealers at an uniform selling price of Rs. 3,95,600 to customers. Dealers are paid 12.5% commission on selling price on sale of a vehicle Apart from other materials four units of Part-X are required to manufacture a vehicle. It is a policy of the company to hold stocks of Part-X at the end of the each month to cover 40% of next month's production. 4,800 units of Part-X are in stock as on 1st October. There are 950 nos. of completed vehicles are in stock as on 1st October and it is policy to have stocks at the end of each month to cover 20% of the next month's sales. You are required to a) Prepare Production budget (in nos.) for the month of October, November, December and January, IPCC _38e_Costing (Problems)_Budgetary Control, 13.12IDS b) Prepare a Purchase budget for Part-X (in units) for the months of October, November and December. ) Calculate the budgeted gross profit for the quarter October to December. (PM, RTP - N14, MTP -M15)(Ans: a) 3,750, 3,700, 4,800, 6,100; b)16,120, 16,560, 21,260; ¢) 7,254) No.1 for CAICWA & MECICEC MASTER PROBLEM 5: G Ltd. manufactures two products called ‘M’ and ‘N’. Both products use a ‘common raw material Z. The raw material Z is purchased @ Rs. 36 per kg from the market. The company has decided to review inventory management policies for the forthcoming year. The following forecast information has been extracted from departmental estimates for the year ended 31st March 2016 (the budget period): Product M Product N ‘Sales (units) 28,000 13,000 Finished goods stock increase by year-end 320 160 Post-production rejection rate (%) 4 6 Material Z usage (per completed unit, net of wastage) 5kg 6kg Material Z wastage (%) 10 5 Additional information - Usage of raw material Z is expected to be at a constant rate over the period - Annual cost of holding one unit of raw material in stock is 11% of the material cost. - The cost of placing an orders is Rs. 320 per order. - The management of G Ltd. has decided that they 1uld not be more than 40 orders ina year for the raw material Z. Required S a) Prepare functional budgets for ended 31st March 2016 under the followingheadings: i) Production budget for Produ ee ind NN (in units). ii) Purchases budget for Mat&RQY (in kgs and value). b) Calculate the Economic Order Quantity for Material Z (in kgs). c) If there is a sole supplier for the raw material Z in the market and the supplier do notsale more than 4,000 kg. of material Z at a time. Keeping the managementpurchase policy and production quantity mix into consideration, calculate themaximum number of units of Product M and N that could be produced. (RTP -N15) (Ans.: a) (i) 21,500, 14,000; (ii) 2,52,310, 90,83,160; b) 6,385.72; c) 18,707, 8,878) PROBLEM 6: Following is the sales budget for the first six months of the year 2009 in respect of POR Ltd Month Jan. Feb. March | April May June Sales (units): 10,000 [12,000 [14,000 | 15,000 | 15,000 | 16,000 Finished goods inventory at the end of each month is expected to be 20% of budgeted sales quantity for the following month. Finished goods inventory was 2,700 units on January 1 2009. There would be no work-in-progress at the end of any month. Each unit of finished product requires two types of materials as detailed below: Material X: 4 kgs @ Rs.10/kg Material Y: 6 kgs @ Rs. 15/kg Material on hand on January 1, 2009 was 19,000 kgs of material X and 29,000 kgs of material Y. Monthly closing stock of material is budgeted to be equal to half of the requirements of next month's production. IPCC _38e_Cos' 9 (Problems)_Budgetary Control. 13.138851 25025/26 www.mastermindsind com Budgeted direct labour hour per unit of finished product is % hour. Budgeted direct labour cost forthe first quarter of the year 2009 is Rs. 10,89,000, Actual data for the quarter one, ended on March 31, 2009 is as under: ‘Actual production quantity: 40,000 units Direct material cost (Purchase cost based on materials actually issued to production) Material X: 1,65,000kgs @ Rs.10.20/kg Material Y: 2,38,000kgs @ Rs.15.10/kg Actual direct labour hours worked: 32,000 hours Actual direct labour cost: Rs.13,12,000 Required: a) Prepare the following budgets: i. Monthly production quantity for the quarter one ii, Monthly raw material consumption quantity budget from January, 2009 to April, 2009. ili, Materials purchase quantity budget for the quarter one. b) Compute the following variances i. Material cost variance ii, Material price variance iii. Material usage variance iv. Direct labour cost variance & v. Direct labour rate variance WS Vi. Direct labour efficiency variance (Ph) (Ans.: Ai. 36,200 units, i. Material X ~ 2,06,200 ~'2,33,800 K's; 6)1, 768008, 1:86 S08 20,0008, v1, 12,0008, v. 32,0008, v. 80,0008 ) MODEL 4: FLEXIBLE BUDGET PROBLEM 7: M/s NNSG Ltd, specialized in manufacturing of piston rings for motor vehicle. It has prepared budget for 8,000 units per annum at budgeted cost of Rs.21,64,400 as detailed below: (Rs) (Rs) Fixed cost (Manufacturing) 2,28,000 Variable costs: Power 78,000 Repairs, etc. 16,000 ‘Other variable cost 6,400 Direct material 616,000 Direct labour. 12,80,000 | 19,36,400 21,64,400 Considering the possible impact on sales tumover by market trends, the company decides to prepare flexible budget with a production target of 4,000 and 6,000 units. On behalf of the company you are required to prepare a flexible budget for production levels at 50% and 75%.Assuming the selling price per unit is maintained at Rs.400 as at present, indicate the effect on net profit. Administration, selling and distribution overheads continue at Rs.72,000. (PM)(Ans.: 3,31,800, 6,47,700, 9,63,600) IPCC _38e_Costing (Problems)_Budgetary Control, 13.14IDS PROBLEM 8: RST limited is presently operating at 50% capacity and producing30,000 units. The entire outp ut is sold at a price of 200 per unit. The cost structure at the 50% level of activity is as under: No.1 for CAICWA & MECICEC MASTER Direct material 75 per unit Direct wages 25 per unit Variable overheads 25 per unit Direct expenses 15 per unit Factory overheads (25%fixed) 20 per unit Selling and distribution exp.(B0%variable) 10 per unit Office and administrative exp.(100%fixed) 5 per unit The company anticipates that the variable costs will go up by 10% and fixed costs will go up by15%. Your require to prepare an expense budget, on the basis of marginal cost for the company at 50% and 60%level of activity and find out the profits at respective levels. (PM, N14 - 8M) (Ans: 2,07,000, 3,31,200) PROBLEM 9:The budgeted cost of a factory specializing in the production of a single product at the optimum capacity of 6,400 units per annum amounts to Rs.1,76,048 as detailedbelow: Rs. Rs. Fixed costs 20,688 Variable costs: Sy Power 1,440 Repairs, etc. 1,700 Miscellaneous 540 Direct Material 49,280 Direct labour: ES 7,02,400 7,558,360 S 7,76,048 Taking note of the possible impact Sales turnover by market trends, the companydecides to have a flexible budget with a production target of 3,200 and 4,800 units(the actual quantity proposed to be produced being left to a later date before commencement of the budget period). Prepare a flexible budget for production levels at 50% and 75%. Assuming the selling price per unit is maintained at Rs. 40as at present, indicate the effect on net profit Administration, selling and distribution expenses continue at Rs. 3,600 (MTP - N15)(Ans.: 26,032, 51,192, 76,362) PROBLEM 10: S Ltd. has prepared budget for the coming year for its two products A and B. Product A | Product B (Rs.) (Rs.) Production & Sales unit 6,000 units | 9,000 units Raw material cost per unit 60.00 42.00 Direct labour cost per unit 30.00 18.00 Variable overhead per unit 12.00 6.00 Fixed overhead per unit 8.00 4.00 ‘Selling price per unit 720.00 78.00 After some marketing efforts, the sales quantity of the Product A & B can be increased by 1,500 units and 500 units respectively but for this purpose the variable overhead and fixed overhead will be increased by 10% and 5% respectively for the both products. You are required to prepare flexible budget for both the products: a) Before marketing efforts 9 efforts, (PM, RTP - M15) (Ans.: 60,000, 72,000) 9 (Problems)_Budgetary Control. 13.158851 25025/26 www.master dsindi com PROBLEM 11: Float glass Manufacturing Company requires you to present the Master budget for the next year from the following information: Indirect labour — ‘Works manager Foreman Stores and spares Depreciation on machinery Light and power Repairs and maintenance Others sundries Administration, selling and distribution expenses Sales: Toughened Glass Rs. 6,00,000 Bent Glass Rs. 2,00,000 Direct material cost 60% of sales Direct wages 20 workers @ Rs. 150 per month Factory overheads : Rs, 500 per month Rs, 400 per month 2.5% on sales Rs. 12,600 Rs. 3,000 Rs. 8,000 10% on direct wages Rs. 36,000 per year details for year 2012. PROBLEM 12:The cost accountant of manufacturing company provides you the following (SM)(Ans.:4,0,000) (Rs) (Rs) Direct materials 1,75,000 | Other variable costs 80,000 Direct Wages 7,00,000 | Other fixed costs 80,000 Fixed factory overheads 7,00,000 | Profit 1,15,000 Variable factory overheads 7,00,000 | Sales WF 7,50,000 During the year, the company manufactured two pr were: 5 "A and B and the output and costs A B ‘Output (units) SG 2,00,000 [| 7,00,000 Selling price per unit v Rs.2.00| Rs. 3.50 Direct materials per unit Rs.0.50| Rs. 0.75 Direct wages per unit Rs.0.25| Rs. 0.50 Variable factory overhead are absorbed as a percentage of direct wages. Other ‘expected that the demand for product A will fall by 25 % and for B by 50%. It manufacture a further product C, the cost for which are estimated as follows: ave been computed as: Product A Rs. 0.25 per unit; and B Rs. 0.30 per unit. During 2013, itis variable costs is decided to Product C ‘Output (units) 2,00,000 ‘Selling price per unit Rs. 1.75 Direct materials per unit Rs. 0.40 Direct wages per unit Rs. 0.25 It is anticipated that the other variable costs per unit will be the same as for product A. Prepare a budget to present to the management, showing the current position and the position for 2013. Comment on the comparative results. (SM)(Ans.:1,18,000, 1,26,000) ABC ANALYSIS A category B category C category Classroom problems | _2,3,6,9,11,12, 4,4,5,7,8,10, 13,14,15,16 Assignment problems 23.8, 4,4,10 5,6,7,9,11,12 THE END IPCC _38e_Costing (Problems)_Budgetary Control, 13.16